A strong rally in US stock indices, robust demand for Australian commodities from China, and the RBA’s firm commitment to fighting inflation are pushing the AUD/USD pair higher. Will anything be able to stop this trend? Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- The RBA plans to continue its monetary tightening cycle.
- China is rapidly ramping up its commodity imports.
- The S&P 500 may continue its rally.
- Long positions can be considered if the AUD/USD surges above 0.715.
Weekly Fundamental Forecast for Australian Dollar
The Australian dollar has not yet returned to its pre-war levels, but it stands a good chance of doing so amid rising global risk appetite, the RBA’s firm stance on curbing inflation, and robust commodity demand from China. These factors had positioned the aussie as a frontrunner in the forex market until the outbreak of the Middle East conflict. Since then, it has been overtaken by the Brazilian real, though the race is far from over.
Interest rates should reach a level that brings inflation back to target. This assessment was outlined by RBA Deputy Governor Andrew Hauser. He noted that consumer prices remained elevated and that the central bank was closely monitoring developments in the Middle East, as they could significantly lift inflation expectations.
Consumer Prices and Inflation Expectations in Australia
Source: Bloomberg.
Andrew Hauser’s hawkish remarks increased the probability of a monetary policy tightening in May from 69% to 72% and provided support for the AUD/USD pair. Futures markets do not anticipate any change in the federal funds rate, while Australia’s key rate could rise by a further 50–75 basis points in 2026. The widening rate differential is expected to support the Australian dollar.
China’s strong demand for commodities is also providing additional support. In March, imports surged by nearly 28%, the fastest pace since 2021, amid the conflict in the Middle East. Beijing has increased oil and other commodity purchases as part of its energy security strategy, which, in turn, benefits Australia’s export-oriented economy.
China’s Exports and Imports
Source: Bloomberg.
However, the main driver behind the AUD/USD rally appears to be the strong performance of US equity indices. The S&P 500 has surged by 7% over the past seven trading sessions. According to AJ Bell, such a sharp advance over such a short period has occurred only three times in the past 30 years. On average, six months later, the broad index was higher by 19%. This raises the question: Is the rally’s strongest part yet to come?
Looking ahead, Australian labor market data for March could act as a catalyst for further AUD/USD gains. Bloomberg economists forecast employment growth of 20,000 and the unemployment rate holding steady at 4.3%. These figures would signal underlying economic resilience and suggest the economy can withstand higher interest rates, which would support the Australian dollar.
However, downside risks remain. Any escalation of the conflict in the Middle East could weigh on the aussie.
Weekly AUDUSD Trading Plan
Meanwhile, the likelihood of a renewed escalation appears limited. Markets are increasingly pricing in progress toward a US–Iran agreement, which is supporting global risk appetite. Against this backdrop, long trades opened on the AUD/USD pair near 0.705 appear well-positioned. If the price breaks through the resistance level of 0.715, more long positions can be opened.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of AUDUSD in real time mode
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